Indigo: Turning a New Chapter
By: Eugene Zanone
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
The Blurb on Indigo
Indigo is a staple of Canadian culture for children, teens and beyond — no Canadian book-enjoyer can resist exploring the store’s shelves looking for their next favourite read, gift, toy, or lifestyle product. However, over the past ten years, a strategic shift away from books and towards lifestyle products has led to the company’s decline. Consecutive years of financial loss, leadership instability, and declining shareholder confidence have raised questions about the company’s future and the effects it will have on the broader book-publishing industry. Indigo currently controls nearly 50 percent of total book sales in Canada through its network of 170 stores nationwide.
Any exit of Indigo from the book distribution market could have adverse consequences for the Canadian publishing industry. The company’s support for authors and publishers is crucial in drawing reader’s attention to new titles. This dependence was proven when sales plummeted for numerous publishing imprints — particularly for new books whose promotion depended on in-store visibility at Indigo — during a cyber attack on Indigo’s ordering system in February of 2023.
The Canadian bookstore industry generated approximately $2.6 billion in revenue over the past five years (2018-23), yet has declined at a compound annual growth rate (CAGR) of 4.2 percent. High competition has driven hundreds of independent bookstores to close their doors, while Amazon’s digital hold on the book market has strengthened. Following the pandemic, this downward trend reversed as strong local support for bookstores emerged as they re-opened, coupled with recent social media book crazes on platforms such as TikTok. It is uncertain whether these drivers of traffic will continue to foster long-term growth for the broader industry, however, they provide medium-term hope for Indigo.
An Unprofitable Lifestyle
The shift to lifestyle products began in 2013 when Heather Reisman, Indigo’s founder and then CEO, stated that Indigo was in “the early stages of a journey [taking us] from our position as Canada’s leading bookseller to our vision of becoming the world’s first [cultural] department store” in the company’s annual report. Reisman further cemented this goal seven years later in 2020, stating that she hoped to continue growing the sales of non-book items until the company achieved a half-and-half ratio of books to general merchandise.
In September 2022, Reismann achieved this goal, with print merchandise accounting for 51.9 percent of sales and non-print merchandise accounting for the rest. At the same time, the company experienced significant losses and turbulence in leadership: Reismann stepped down as CEO, and she was replaced by Peter Ruis: an executive with experience in fashion retail but not books. As the company accrued more and more financial losses and leadership disagreed over strategic direction, Reisman and four other directors stepped down from the board in June 2023. This includes Dr. Chika Stacy Oriuwa, who attributed her resignation to a “loss of confidence in board leadership” and “mistreatment”, which the company has not addressed to date. Less than two weeks later, Peter Ruis resigned from his role as CEO and Reisman returned to the helm.
Since her return, Reisman has back-tracked on her vision of a “cultural department store,” instead stating that “over the last while, somehow books felt like they were not the heart and soul.” Now, Reisman has specified a goal for books to represent 65-70 percent of Indigo’s sales in the future as part of an “Indigo 4.0” turnaround transformation plan.
Losses, Losses, Losses
Over the last decade, Indigo’s stock price has declined dramatically from approximately $11 to now just under $2, a low last seen during the peak of the pandemic in early 2020. Indigo has experienced financial losses in four out of the past five fiscal years, including a $49.6 million loss in 2023, compared to $3.3 million in profit the year prior. Most recently, in their 2024 second fiscal quarter earnings report, Indigo reported a $22.4 million loss. The company has primarily attributed this to the broader macroeconomic environment as well as the aftereffects of a massive cyberattack in February 2023. However, Indigo’s downfall is principally attributed to its prolonged negative profit margins, exacerbated by non-book items with lower profit margins than books. Thus, Indigo’s profitability is the immediate priority to avoid insolvency.
Indigo’s Next Chapter
To address the aforementioned profitability challenges, Indigo should focus on reducing store overhead costs, capitalize on emerging book trends, and produce its own higher-margin private label books.
Small Format Stores
As of September 30, 2023, Indigo operates 87 Chapters and Indigo superstores and 83 small format stores (SFS) — Coles and Indigospirit. SFSs have far outperformed superstores on a sales per square foot metric every year from 2013-2023. Over the same period, SFS sales per square foot increased by double compared to superstores — representing a 28 percent CAGR compared to 14 percent for superstores.
By pursuing this strategy, Indigo can learn from its peers south of the border in Barnes & Noble. In 2019, seasoned book retailer James Daunt took over as CEO of Indigo’s closest comparable company, Barnes & Noble. Daunt’s vision was to mould the national chain into a collection of boutique, independent stores. In the coming year, he aims to open many new stores sized at approximately a quarter of its typical 25,000 square foot size. Daunt claims that the giant can drive the same volume out of an 8,000 square foot store as it can out of a 25,000 square foot store.
SFSs are more profitable than superstores for many reasons. These stores often have lower fixed costs and can better optimize inventory levels. These stores also tend to be more convenient for customers because they can conveniently fit within retail shopping centres, street-front retail areas, major airports, and central business districts. As reported by BookNet Canada, convenience was the top factor Canadian book consumers considered in 2022. Finally, SFSs can better tailor their product offering to the local community. Forbes Contributor Jia Wertz stated that "with the right mix of product in-store, a smaller format [retail store] can often mean a more efficient sales strategy.”
Decentralized Stores
In 2023, Indigo gained a giant spike in popularity on social media. In its annual statement that year, the company stated that “Over the past year, we have continued to lean into the global phenomenon ‘#BookTok’ — a hugely popular sub-community on TikTok — to capitalize on a resurgence of interest in books and engage a new generation of readers to fuel future upside.”
The 2022 version of BookNetCanada’s Canadian Book Consumer survey found that 21 percent of all Canadian book buyers are on TikTok, up from 17 percent in 2021. Additionally, the number of books purchased by Canadians due to a recommendation or review was 17 percent in 2022, up 44 percent over the last five years. Out of the 20 old books (not new releases) studied that have trended on #BookTok since it began in 2020, sales increased exponentially by approximately 1,047 percent overall.
It is clear that #Booktok is transforming the way many Canadians discover books, and for Indigo to capitalize on this, they must have the necessary supply chain infrastructure and layout to meet trends. One way to do this would be to prioritize store independence — allowing each SFS to act as a local bookshop, giving management complete or partial control over the titles they choose to sell and display. Barnes & Noble has adopted a similar decentralized approach to the operations of its stores in the U.S. market.
Private Labelled Books
Indigo can further enhance profitability by investing in private label books. A private label book is published in-house rather than under a traditional publisher such as Random House. Cutting publishers from the supply chain would allow Indigo to save a percentage on each book sold, boosting profitability margins. Private labelling would also enable Indigo to offer unique books unavailable on Amazon, bolstering its value proposition to consumers.
Private labelling is common in many industries, but is as of recently, unheard of in book retailing. The concept first appeared in the Wall Street Journal in November 1994, when Barnes & Noble began selling self-published books for classics like Moby Dick when it realized it could make larger profits per book. When private labelling, bookstores can pocket the sale price net production costs whereas if it sells other publishers’ books, it pays about 50 percent of the cover price. Another article from the Wall Street Journal in June 2003 echoed the concept, clarifying that “the company hopes to have its own titles account for 10-12 percent of total revenue within five years.”
Indigo should specifically focus on private labelling children’s books. This genre is easier to recruit authors as compared to more mature genres because children’s books do not depend as heavily on author recognition as adult fiction or nonfiction. Additionally, children’s books represent the largest portion of book sales in Canada, thus presenting the largest monetary opportunity for the company. Using Indigo’s FY23 print sales — estimating the revenue attributed to children's books based on industry averages, and assuming a conservative 6 percent adoption rate — approximately $9.9 million of revenue could be converted into higher-margin private label publisher sales. As the number of authors under Indigo’s private publisher label continues to rise over the next five years, the percentage of sales attributed to private label authors is expected to increase exponentially.
The Epilogue
By reducing store overhead costs, utilizing #BookTok trends to garner traffic, and developing its own private label books, Indigo can write its own destiny. By achieving profitability, Indigo can preserve its long-lasting legacy in Canadian culture and reestablish investor confidence in the company.
